Since its emergence in 2015, the build-to-rent sector has gone from strength to strength in the UK. The future looks bright too, even with a slight slowdown because of the Covid pandemic: currently, there is £1.4bn worth of deals in the pipeline for new developments.
The UK was late to the build-to-rent party, with the US already going strong with its “multifamily” units and Europe also embracing the living model. And while the traditional form of renting is still very much the status quo on these shores, the mindset is slowly changing, and a growing number of renters are looking for all-inclusive living experiences.
Build to rent aims to attract renters who want something different, offering on-site amenities and a “community-living” experience. But can it grow to the point where it’s considered the “new normal” in renting and become a market leader in the UK rental market?
Build to rent: the key numbers
The build-to-rent impact continues to impress, with the sector growing each year since its inception in 2015.
- 150,000-plus developments are either completed, in development or in planning
- £1.4bn worth of deals are currently in the pipeline
- London accounts for 52% of build-to-rent developments
- Developments are also growing outside of London, with 58% rising 58%
- The build-to-rent market is currently worth £9.6bn but is expected to grow to £543bn
- 27% of all new homes in construction are build-to-rent properties
The changing dynamic of renters
The rise of Generation Rent has birthed a new renting persona. Traditionally, people rented cheap accommodation while saving for a deposit to get on the property ladder. With the cost of house pieces continuing to rise, however, the idea of owning bricks and mortar is nothing but a pipedream for many.
Average tenancies in the UK have increased to 4.1 years as a result, and a quarter of the UK housing market will consist of private renters by 2021. People are now looking for somewhere to call “home” when renting; they want a place where they can lay down roots.
That means renters are more particular about their living choices and are usually willing to pay extra for a premium experience. Build to rent largely caters to their demands with its modern homes and mini-communities that often feature residents lounges, on-site gyms and concierge services.
Whereas traditional renting from a private landlord mostly focuses on the landlord’s needs, build to rent was designed with renters in mind to foster an environment that is exclusive to them.
What makes build to rent popular?
Many renters want to live in a community where they know their neighbours. This is especially true in larger cities like London, which can be lonely and isolating places to live. The idea of sharing a building where you interact with other residents in social spaces such as a lounge or terrace is appealing to many that desire a more wholesome renting experience.
Even in a landscape where most renters stay in homes for longer, flexibility is still a big draw – especially for younger renters. Many build-to-rent options offer flexible contracts, with some having three-year tenancies and others just six months. Developments are also flexible with living arrangements, whether it’s allowing pets to stay in the property, offering furnished or unfurnished options and allowing tenants to decorate their homes.
Convenience is key for most renters, especially as they have become so accustomed to instant gratification in other aspects of their lives thanks to the on-demand economy. Technology-driven features, such as managing your in-life tenancy via an app, are now an expectancy. Build-to-rent developments emphasise easing the process for tenants with in-app maintenance reporting, instant messages with building employees and access to documents like their tenancy agreement.
Build to rent drawbacks
The sector does have its drawback, however, and many of the developments look out of sorts in their local areas. Too many times, the buildings don’t take the local demographics, employment rates and the spirit of the local neighbourhood community into account. This often results in something that is completely out of sync with the local neighbourhood.
The idea of a fully-fledged community also sounds great as a marketing feature, but in reality, it’s hard to replicate. Too many buildings add some social spaces and an on-site supermarket in the hope that it’s enough to attract renters. But there’s a lack of originality which means developments lose the uniqueness they were aiming for in the first place.
New homes have their appeal, but many renters desire bespoke options – places with original period features and quirks that you won’t find in a modern build-to-rent space. Regardless of available technology or simplicity, the quality of the home will always be the primary factor in a decision to move home.
Should you build to rent?
So will build to rent become the market leader, replacing the traditional form of renting? It may well go on to lead the way through sheer force, with huge finances plunged into the sector. But too much institutional capital could drive down already slim yields, especially in London.
Increased developments provides renters with plenty of options, yet it leaves developers competing in spaces where it’s hard to innovate. Adding amenities, such as gyms and social spaces doesn’t always create additional yields – especially when tenants come to expect them as a service.
From the tenant’s point of view, the on-site spaces will always be secondary to the quality of their home. Anything else is an added bonus. That’s why there will always be a desire for an alternative option, the type of homes that build-to-rent communities can’t replicate.
However, landlords, portfolio owners and large-scale asset investors can learn from build to rent in how it handles tenant relationships. Using technology and having apps to manage the in-life tenancy is appealing, whether you live in a 25-story building or converted Georgian house.
Tenants want easier access, being able to make maintenance requests, track their status and have issues solved in a timely manner without long email chains, phone calls and back and forth with landlords and property managers. These elements can all add a better service and increase yields in the long run.
Build to rent has innovated in many areas, such as its emphasis on technology, but the rental market is large enough for it to co-exist with traditional renting methods. That means you can be a landlord of one property or own 100 units and still thrive, as long as you have the right tools at your disposal to meet the complexities of an evolving rental market.